MADISON AUMENT: I’m Madison Aument, and this is Economics IE.
The median home price in the Inland Empire rose by more than $100,000 from 2019 to 2021. Now, home prices across the region are declining.
I’m joined by Daniel McDonald, who’s an economics professor at Cal State San Bernardino. He says the IE’s housing market is experiencing a correction.
So let’s talk bigger picture. What is happening with the Inland Empire housing market right now?
DANIEL MCDONALD:Housing market correction occurs for two reasons. So first, people think that the housing market is overvalued, meaning that prices are just currently higher than they should be. A second reason why a correction occurs is because, as a response to overvalued houses, you start to see prices going down. So when prices are actually declining, and when that's a response to people believing that houses are priced too high, then you have the correction.
And there is evidence for housing correction on both of these fronts. So both in terms of overvaluation and in terms of declining prices, we saw significant price growth in 2020 and 2021. For example, the California Association of Realtors reports that between December 2019 and December 2021, so just in two years, the median sales price of a home in the Inland Empire increased from 385,000 to 540,000. So that's a massive increase. It's a $160,000 increase in just two years. That price is going up way more than what we would predict.
And since then, prices have stayed about the same. So the devil's advocate here is saying, well, since 2022 or 2023 prices have hovered around 600,000. Even today, the median sales price is about 600,000 in the Inland Empire, according to the California Association of Realtors.
But then you have the affordability side of it. So the unemployment rates are going up. Median income growth has slowed down. Home ownership rates have stayed mostly constant since 2021. So that's another sign that the housing market is overvalued, because relative to what people can afford, prices are high.
MADISON AUMENT:So we’re seeing these prices decline. What’s driving that shift?
DANIEL MCDONALD:Prices for homes don't usually come down. People have a very strong sense of what their home is worth, and they're not willing to accept that the value of their home is declining. So people will just hold on to the home. They'll take it off the market. So the market, the demand for homes, cannot support those kinds of prices, and so sellers are just forced into accepting a lower price for their home.
The main reason behind the declining prices, which we are seeing in a lot of core metro area markets, is that we can talk about exactly where that's happening. It's happening primarily because people just cannot afford the high prices that the houses have been at. And again, even if prices appear to be moving somewhat laterally at this point, you have to look at the income situation and the market demand situation. People are not in as good a position as they were a few years ago.
Unemployment has steadily crept up in the Inland Empire. California's labor market has been forecast to continue to be weak through 2025, but also in 2026. And so that all points to a situation where buyers just don't have the income potential to support those kinds of prices. And so we are seeing something that, again, is very surprising, because normally prices do not come down, but we are seeing declining listing prices in many markets across the Inland Empire.
MADISON AUMENT:Are there parts of the Inland Empire that are seeing this correction more than others?
DANIEL MCDONALD:Yeah, the decline in listing prices is happening in most parts of the Inland Empire. For example, the 91762 zip in Ontario, which is the zip in Ontario closer to LA, is seeing more declines than, say, 91764, which is a little bit further away from LA.
In Fontana, zip 92336, which is northern Fontana, is seeing more declines than other parts of Fontana, closer to the I 10. In some markets, prices are increasing, or at least not decreasing that much. So, for example, in Redlands, both 92373 and 92374 continue to see moderate to strong price increases, median listing price increases, but that's really quite rare. Most parts of the Inland Empire are seeing those price declines.
MADISON AUMENT:That was Daniel McDonald, an economics professor at Cal State San Bernardino. You can find this segment at kvcrnews.org, Econ IE. The segment is supported by the Nowak family. For KVCR News, I’m Madison Aument.
